1.000 Exclusions from Gross Income

Exclusions from Gross Income

1.000

5,532.2

6,053.0

6,197.6

6,497.7

6,798.2

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1.001
Exemption of Premiums on Accident and Accidental Death Insurance

Employer contributions for premiums on accident and accidental death insurance are not included in the income of the employee and are deductible by the employer.

IRC § 106

included in 1.004

1.002
Exemption of Premiums on Group-Term Life Insurance

Due to Massachusetts' reliance on the Internal Revenue Code ("Code") for purposes of determining income, employer payments of employees' group-term life insurance premiums for coverage up to $50,000 per employee are not included in income by the employee.

IRC § 79

31.5

1.003
Exemption of Interest on Life Insurance Policy and Annuity Cash Value

Due to Massachusetts' conformity with Internal Revenue Code (IRC) § 101, increases in the cash value of life insurance policies and annuities are not taxed until distributed to the policy holder. If the policy holder dies with the policy in force, the increase in value and the death benefit are excluded from income when paid to policy or annuity beneficiaries.

IRC § 101

419.4

1.004
Exemption of Employer Contributions to Accident and Health Plans and Certain Benefits Received

Massachusetts conforms to the federal individual income tax exclusions for: (i) employer contributions to employees' accident and health plans and (ii) benefits received by employees from such plans.

M.G.L. c. 62, §§ 1(c), 1(d), and § 2(a)(2)(Q); Code §§ 105 and 106

1,489.5

1.005
Exemption of Annuity or Pension Payments to Fire and Police Personnel

Income from noncontributory annuities or pensions to certain retired fire and police personnel or their survivors are tax-exempt.

M.G.L. c. 32

N.A.

1.006
Exemption of Distributions from Certain Contributory Pension and Annuity Plans

Certain pensions and annuity distributions are tax-exempt under Massachusetts law. They are payments from contributory plans of the U.S. government, Massachusetts and its subdivisions, and other states that do not tax such income from Massachusetts. Any benefits in excess of contributions not taxed by Massachusetts constitute this tax expenditure.

M.G.L. c. 62, §§ 2(a)(2)(E)

417.0

1.007
Exemption of Railroad Retirement Benefits

Railroad retirement benefits are not taxed. (Massachusetts has not adopted Internal Revenue Code section 86, which taxes some of these benefits if a taxpayer's income is above a certain level.).

Comment: No adjustment is made for any prior payments taxpayers may have made to fund this system since employee payments to this system are taxes rather than contributions.

M.G.L. c. 62, § 2(a)(2)(H)

6.3

1.008
Exemption of Public Assistance Benefits

Due to Massachusetts' reliance on the Internal Revenue Code (Code) for purposes of determining income, public assistance benefits are excluded from gross income.

IRC § 61(a)(1); Rev. Rul. 71-425, 1971-2 C.B. 76

1,293.1

1.009
Exemption of Social Security Benefits

Social Security benefits paid to people age 65 or older and their dependents, to persons under 65 who are survivors of deceased workers, and to disabled workers and their dependents are not taxed. Massachusetts has not adopted Internal Revenue Code section 86, which taxes a portion of these payments where a taxpayer's income is above a certain level.

Comment: The comment under item 1.007 applies to this item as well.

M.G.L. c. 62, § 2 (a)(2)(H)

1,319.7

1.010
Exemption of Workers' Compensation Benefits

Due to Massachusetts' reliance on the Internal Revenue Code ("Code") for purposes of determining income, amounts received under workers' compensation acts as compensation for personal injuries or sickness are excluded from gross income.

IRC § 104 (a)(1)

53.0

1.011
Exemption for Dependent Care Expenses

Day care paid for or provided by an employer to an employee, the value of which does not exceed the employee's or employee's spouse's "earned" income, and does not exceed the amount of $5,000, is not included in the income of the employee and is deductible by the employer.

IRC § 129

16.0

1.012
Exemption of Certain Foster Care Payments

Massachusetts conforms to the federal income tax exclusion for payments by state and local social services agencies to taxpayers that provide foster care to children in need.

IRC § 131

4.6

1.013
Exemption of Payments Made to Coal Miners

Coal miners or their survivors may exclude from income payments for disability or death from black lung disease.

IRC § 104(a)(1); Rev. Rul. 72-400

Negligible

1.014
Exemption of Rental Value of Parsonages

Massachusetts conforms to the Internal Revenue Code (the "Code") provision allowing ministers to exclude from gross income a housing allowance or the rental value of a parsonage furnished as part of their compensation. As defined in IRS pronouncements and federal case law, the term minister includes people holding various titles in a variety of religious organizations.

M.G.L. c. 62, §§ 1(c), 1(d), and § 2(a); Code § 107

4.3

1.015
Exemption of Scholarships and Fellowships

Degree candidates can exclude scholarships and fellowship income if the amounts are not compensation for services or for the payment of room, board or travel expenses.

IRC § 117(a)

49.1

1.016
Exemption of Certain Prizes and Awards

Prizes and awards are generally required to be included in income. The exemption of certain prizes and awards is generally limited to taxpayers who donate the proceeds to a charitable organization. Certain employee achievement awards are also excluded from gross income.

IRC § 74

N.A.

1.017
Exemption of Cost-Sharing Payments

Portions of government cost-sharing payments to assist in water and soil conservation projects are not includible in the recipient's income.

IRC § 126

Negligible

1.018
Exclusion from Employee Income of Meals and Lodging Furnished for the Convenience of the Employer

This tax expenditure provides employees with an income exclusion for the value of meals and lodging provided by their employers for the employers' business purposes. Massachusetts conforms to the exclusion set out in the Internal Revenue Code (the "Code"), which results in a state tax expenditure.

M.G.L. c. 62, § 2(a)

50.7

1.019
Exclusion from Employee Income of Business-Related Meals and Entertainment

Provides an income exclusion for the value of business-related meals and entertainment provided to employees, consistent with the federal exclusion.

M.G.L. c. 62, § 2(a)

31.3

1.020
Exemption of Income from the Sale, Lease, or Transfer of Certain Patents

Exempts from tax income from the sale or transfer of certain patents, or from the production of royalty or other income from property subject to such patents, for a period of five years. The patents must be issued to or applied for by a Massachusetts resident or a Massachusetts corporation, support energy conservation or alternative energy, and be approved by the commissioner of energy resources.

M.G.L. c. 62, § 2(a)(2)(G); M.G.L. c. 63, § 30.3

Expired

1.021
Exemption of Capital Gains on Home Sales

Massachusetts conforms to the Internal Revenue Code (the "Code") § 121 exclusion from gross income for up to $250,000 of capital gain (or $500,000 if filing jointly) on the sale of a principal residence.

M.G.L. c. 62, §§ 1(c), 1(d), and § 2(a); Code § 121

435.5

1.022
Nontaxation of Capital Gains at Death

Ordinarily, capital gains are taxed at the time appreciated property is transferred. However, no tax is imposed on a capital gain when appreciated property is transferred at death. The appreciation that accrued during the lifetime of the transferor is never taxed as income. Comment: See also item 1.106

IRC §§ 1001 and 1014

837.6

1.023
Exemption of Interest from Massachusetts Obligations

Interest earned on Massachusetts state and local obligations is exempt from the personal income tax. The exemption applies to interest income from any obligation issued by the Commonwealth, any political subdivision of the Commonwealth, or any agency or instrumentality thereof.

M.G.L. c. 62, § 2 (a)(1)(A); IRC § 103

86.4

1.024
Exemption of Benefits and Allowances to Armed Forces Personnel

Under the January 1, 1998 Code, Massachusetts allowed the federal exclusion for certain military fringe benefits including combat zone compensation, veterans' and medical benefits, disability benefits, moving allowances and a death gratuity benefit of $3,000. As a result of legislation under which the Commonwealth incorporated into Massachusetts personal income tax law the Code as amended and in effect on January 1, 2005 (hereinafter referred to as the "Code Update"). This exclusion was extended to include dependent care assistance under a dependent care assistance program, travel benefits received under the Operation Hero Miles program and an increased death benefit gratuity of $12,000.

IRC §§ 112

38.9

1.025
Exemption of Veterans' Pensions, Disability Compensation and G.I. Benefits

These veterans' benefits are not taxed.

38 U.S.C. § 5301

53.0

1.026
Exemption of Military Disability Pensions

Disability pensions paid to service personnel are fully excluded from gross income. The portion of a regular pension that is paid on the basis of disability may also be excluded.

IRC § 104(a)(4)

0.9

1.027
Exemption of Compensation to Massachusetts-Based Nonresident Military Personnel

Compensation paid by the U.S. to nonresident uniformed military personnel on duty at bases within Massachusetts for services rendered while on active duty is defined as compensation from sources outside Massachusetts. It is therefore not taxed.

Comment: This tax treatment follows U.S. statutory law.

50 U.S.C. App. 574; M.G.L. c. 62, § 5A(c)

13.8

1.028
Exemption for Taxpayers Killed in Military Action or by Terrorist Activity

Massachusetts residents who die in combat while in active military service, or who die as a result of terrorist or military action outside of the U.S. while serving as military or civilian employees of the U.S. are exempt from income taxation.

M.G.L. c. 62, § 25

N.A.

1.029
Exemption for Retirement Pay of the Uniformed Services

Effective January 1, 1997, income received from the United States government as retirement pay and survivorship benefits for a retired member of the Uniformed Services of the United States is exempt from the personal income tax. The Uniformed Services of the United States are: the Army, Navy, Air Force, Marine Corps, Coast Guard, and the Commissioned Corps of the Public Health Service and National Oceanic and Atmospheric Administration.

M.G.L. c. 62, § 2(a)(2)(E)

24.4

1.030
Exclusion from Gross Income of Parking, T-Pass and Vanpool Fringe Benefits

Massachusetts conforms to the federal tax exclusion for employer-provided parking, transit passes, and vanpool benefits provided under the Internal Revenue Code (the "Code"). In 2023, the Massachusetts and federal exclusions are subject to monthly maximums of $300 for parking and $300 for combined transit pass and vanpool benefits.

The Massachusetts exclusion amount was different than the federal exclusion amount in prior years because prior to 2022 the state relied on the federal exclusion amounts determined under the 2005 Code.

M.G.L. c. 62, §§ 1(c), 1(d), and § 2(a); Code § 132(f)

39.4

1.031
Health Savings Accounts

For federal income tax purposes, the earnings in a Health Savings Account (HSA) accrue on a tax-free basis, and qualified distributions from a HSA are excluded from gross income. Prior to the most recent Code update, Massachusetts taxed earnings in a HSA and also taxed distributions to the extent such amounts were not previously taxed by Massachusetts. As a result of the Code update, Massachusetts adopts the federal exclusion for earnings in, and qualified distributions from, a HSA.

IRC § 223

included in 1.422

1.032
Employer-Provided Adoption Assistance

Massachusetts adopted the federal exclusion for employer-provided adoption expenses paid (or treated as paid under IRC sec. 137). Previously, Massachusetts followed the 2005 Code and as such the exclusion had a sunset after 2010. With the recent update to the Code as of January 1, 2022, Massachusetts this expenditure has been restored.

IRC § 137

2.6

1.033
Employer-Provided Educational Assistance

Massachusetts adopts the federal exclusion for qualified educational expenses reimbursed to an employee under an employer-provided education assistance program in effect as of the 2005 Code Update. Massachusetts adopts the federal exclusion for qualified educational expenses for undergraduate and graduate education expenses up to the federal annual maximum of $5,250 per calendar year.

IRC § 127 and 132(j)(8)

19.2

1.035
Department of Defense Homeowners Assistance Plan

Massachusetts adopts the federal exclusion for the employee fringe benefit of payments received under the Homeowners Assistance Plan. Such payments are intended to compensate military personnel and certain civilian employees for a reduction in the fair market value of their homes resulting from military or Coast Guard base closure or realignment.

IRC § 132(n)

N.A.

1.036
Survivor Annuities of Fallen Public Safety Officers

For both Massachusetts and federal tax purposes, an exclusion from income is allowed for amounts paid under a governmental plan as an annuity to the survivor of a public safety officer killed in the line of duty. Massachusetts adopts the federal exclusion as amended and in effect on January 1, 2005, that excludes these annuities.

IRC § 101(h)

N.A.

1.037
Survivor Annuities of Fallen Astronauts

Massachusetts adopts the federal exclusion for death benefits paid by the U.S. government to the survivors of astronauts who die in the line of duty. The Massachusetts exclusion is effective for payments made on or after January 1, 2005.

IRC § 101(i)

N.A.

1.039
Discharge of Indebtedness for Health Care Professionals

Massachusetts adopts the federal exclusion for discharges of indebtedness related to certain costs for students entering health care professions.

M.G.L. c. 62, § 2; IRC § 108(f)(4)

1.2

1.040
Archer Medical Savings Accounts

For federal income tax purposes, the earnings in an Archer Medical Savings Account (MSA) accrue on a tax-free basis, and qualified distributions from an Archer MSA are excluded from gross income. Prior to the 2005 Code update, Massachusetts taxed earnings in an Archer MSA for individuals who became active participants on or after January 1, 2001 and also taxed distributions for such individuals to the extent such amounts were not previously taxed by Massachusetts. As a result of the Code update, Massachusetts adopts the federal exclusion for earnings in, and qualified distributions from, an Archer MSA for all federally qualified individuals.

IRC § 220

included in 1.420

1.041
Earnings of Pre-paid and Tuition Savings (529 plans)

For both Massachusetts and federal tax purposes, an exclusion from income is allowed for the earnings of pre-paid tuition programs and tuition savings accounts. Massachusetts has available the U.Fund College Investing Plan, a direct-sold 529 college savings plan managed by Fidelity Investments using Fidelity mutual funds. The plans are opened for a student beneficiary, and contributions are accepted until all account balances in Massachusetts' 529 plans for the same beneficiary reach $375,000. Qualified distributions from Massachusetts are exempt from state taxation. Note that Massachusetts also has the "U.Plan Prepaid Tuition Program", offered by the Massachusetts Education Financing Authority (MEFA). The U.Plan is not a qualifying 529 plan but is nevertheless tax-free for federal and Massachusetts income tax purposes because participants are purchasing Massachusetts general obligation bonds (see Item 1.023). The bonds are redeemable to pay specified percentages of tuition and mandatory fees at 80 participating private and public Massachusetts colleges and universities. New provisions that began in 2018 also allow 529 plan account funds to be used for elementary or secondary school expenses, up to $10,000 per year. Massachusetts adopts this change as Massachusetts follows the current IRC with respect to IRC § 529. See TIR 18-14 for more information.

IRC § 529

31.5

1.042
Exclusion of Gains of Qualified Small Business Stock (QSBS) Gain

For federal tax purposes Internal Revenue Code ("IRC") § 1202 allows individuals an income exclusion for gains derived from the sale of qualified small business stock ("QSBS"). Because Massachusetts generally follows the IRC as in effect in 2005 for personal income tax purposes, Massachusetts allows an income exclusion for 50% of such gains.

IRC § 1202

28.4

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